GameStop Falls as Margins Decline

Second-quarter results easily beat expectations, although the stock loses ground as gross profit margins decrease.

Author:: Robert Holmes
Publish date:: Aug 21, 2008 10:36 AM EDT

Updated from 9:28 a.m. EDT

GameStop

reported second-quarter results Thursday that easily beat expectations, although shares traded lower as gross profit as a percentage of sales slipped from a year ago.

The video-game retailer said it had net income of $57.2 million, or 34 cents a share, for the quarter ended Aug. 2. Those results more than doubled from $21.8 million, or 13 cents a share, in the year-ago period. On average, analysts expected GameStop to notch a profit of 28 cents a share, according to Thomson Reuters.

GameStop said revenue rose 34.8% from a year ago to $1.8 billion as same-store sales jumped 20% during the quarter. Wall Street's average sales target was $1.69 billion.

"In the second quarter, we produced record revenues in each of the geographical regions where we operate," said R. Richard Fontaine, GameStop's chairman and CEO, in a statement. "By prioritizing our investments and focusing our resources, GameStop continues to significantly outperform the specialty retail segment as a whole, when comparing top-line growth, comparable store sales, and net earnings growth."

However, gross profit as a percentage of sales fell from the year-ago quarter to 26.8%. Shares of GameStop were losing $2.87, or 6.6%, to $40.65.

Looking ahead, GameStop said third-quarter earnings should fall in a range of 36 cents to 38 cents a share, compared with the average estimate of 36 cents a share. The company said that it should see a fourth-quarter profit of $1.37 to $1.40 a share, which would be above the consensus target of $1.36 a share.

For the full year, GameStop expects earnings per share to come in between $2.45 and $2.50, above the Thomson Reuters estimate of $2.39 a share. For the upcoming fiscal year, GameStop said that earnings per share will grow at least 25%, which would equate to between $3.06 and $3.13 and top expectations for a profit of $2.99 a share.

Among other retailers that sell video games,

Circuit City

(CC) - Get Report

was down 0.6%, and

Best Buy

(BBY) - Get Report

was losing 0.8%.